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Philip Ryan: Credit watchdog fails to report banks for breach of lending code

CREDIT Review Office chief John Trethowan does not report Nama banks to the regulator when he finds they have breached codes of conduct for lending to small businesses, the Sunday Independent can reveal.

The former National Irish Bank CEO, who is tasked with reviewing the lending policies of Nama banks, said it would not be "fair" to report banks for a "singular" breach of the Central Bank's code of conduct for Business Lending to Small and Medium Enterprises (SMEs).

Violations of the code can result in banks receiving fines up to €5m and can potentially lead to bankers being disqualified from managing regulated financial services.

Mr Trethowan, who talks to the Central Bank regularly, said he would only report "serial abuses" of the guidelines -- but this has not happened since he took office in April 2010.

The ex-banker, whose organisation was established under the Nama Act, said: "I do have contact with the Central Bank and we do talk but it's not about reporting.

"I wouldn't see reporting on one-off incidents as part of what I've been commissioned to do."

However, business owners, who successfully overturned their bank's decision to refuse credit through John Treth-owan's office, said they were surprised he did not report lenders for breaking rules put in place to protect SMEs.

Fianna Fail's finance spokesman, Michael McGrath, said he believed the breaches were "merely the tip of the iceberg" and called on Mr Trethowan to report all information to the Central Bank.

He said: "Given the tiny number of lending cases coming before the Credit Review Office, it is disturbing that they are finding evidence that the code is not be honoured by the banks."

Earlier last week, Mr Trethowan expressed his disappointment with the two pillar banks under his remit, Bank of Ireland and AIB, for not showing evidence of "enterprise risk-taking" in their current lending policies.

The office's eighth quarterly review showed it upheld 60 per cent of appeals lodged by businesses against their bank's decision to deny them credit, since the agency was formed.

The former NIB chief executive told the Sunday Independent that his office found a number of instances of lending institutions breaching banking guidelines since he took office.

One of the main causes of concern for Mr Trethowan was banks not responding to applicants within the 15 days set out in the Central Bank's code of conduct.

Mr Trethowan said: "That would be the main thing we would look for, if the borrowers are getting a decision turned around in a reasonable time.

"There is also what we call the 'slow no' which is when they get asked for a piece of information and when they provide it, they are asked for another piece of information.

"We wouldn't regard that as stopping the clock on the 15 days so it's only if it's a critical piece of information.

The 'slow no' tactic used by banks is one that Organic Supermarket owner, Darren Grant, and Fun Galaxy children's play centre boss, Sharon Farrell, are all too familiar with.

With a €800,000 annual turnover and 20 per cent year on year sales growth, Mr Grant turned to AIB for a €15,000 capital injection to keep his award-winning organic food business afloat during the recession.

The businessman received a start-up business loan from the bank two years earlier but when he returned for a small top-up loan, he was made wait an agonising 83 days before being refused.

Mr Grant said: "I was given the biggest run-around of my life. I was constantly asked to come back to them with new sets of figures. I was on my knees, I was about to lose my business.

"Those 83 days for me, if you can imagine when you have invested your entire life into something, were torturous," he said.

He then turned to the Credit Review Office, where, thankfully, Mr Trethowan saw that he had a viable business and recommended the bank's refusal be overturned.

Mr Grant said: "They were amazing to deal with, the communications lines were great. I was constantly updated on what stage my contract was at."

In his review of Mr Grant's application, Mr Trethowan noted: "The bank appears to have taken 83 days to decline the initial request for credit. This is not acceptable."

The Organic Supermarket owner said he was surprised the breach was not reported as he "would have screamed it from the rafters" if he knew that the Central Bank was listening.

Mr Grant now intends to report AIB to the Central Bank for breaching their code of conduct.

AIB said that it has improved structures and processes to avoid unnecessary delays for customers and since the middle of last year it has worked hard to ensure better access to its products and services especially in the SME area.

Sharon Farrell and her husband Tom employ 52 people in their two Fun Galaxy children's play centres in Swords, Co Dublin and in Ashbourne, Co Meath.

The couple set up their two children's adventure centres with a credit union loan, their own cash and with the help of a private investor.

The business is thriving and they have never defaulted on a single payment to a lender.

But when they went to Bank of Ireland looking for a business loan to help expand their company, they experienced the same treatment as Mr Grant.

Mrs Farrell said: "When we put in for our first loan with the bank it was nearly four and half months before we even heard back from them.

"Then we applied for a smaller amount and it was another six to eight weeks before we heard anything.

"Even when they decided to give us the money, it was eight weeks before they signed off on it," she said.

Mrs Farrell said Mr Trethowan also noted Bank of Ireland's delay in processing her application in his final review of their loan request.

She said: "I'm surprised that they don't report them because they are so good with everything else they do."

A Bank of Ireland spokeswoman said: "Compliance with the code in this instance is absolutely dependent on the customer providing the appropriate information to allow the bank make the lending decision."

Supermarket boss Mr Grant has vowed never to bank with AIB again following his ordeal.

He said: "I was treated like a peasant or a criminal, it was horrendous. Screw AIB -- hang them to the wall is what I'd say."

This is not a sentiment shared by the man charged with reviewing the lending decisions of the banks which have been given billions of euro by taxpayers.

Mr Trethowan does not feel he should alert the Central Bank to breaches of codes of conduct, that were introduced by the Regulator in the wake of the collapse of the Irish economy.

These guidelines were drawn up because of a lack of banking regulation and due to a complete breakdown in communications between banks, regulators and the Government.

The Central Bank refused to comment on Mr Trethowan's failure to report breaches of their guidelines.

Sunday Independent